Electric vehicle (EV) charging station network company ChargePoint (CHPT -1.96%) and pipeline giant Kinder Morgan (KMI -1.12%) may not have much in common on the surface. But both energy stocks are playing active roles in shaping the economy of tomorrow.
The majority of traditional automakers have announced an entirely new EV lineup or an EV version of an existing model. No matter who comes out on top, new EVs are going to need places to charge. That's where ChargePoint comes into play. It's betting big on the rise of at-home charging and public charging. But instead of gas stations, it's been partnering with companies to install charging stations at shopping centers, business parks, and more. Meanwhile, Kinder Morgan believes the transportation and storage of natural gas and other fuels will continue to provide an integral role in the U.S. energy mix, as well as an export commodity to developing countries. Here's a breakdown of the two companies to help determine which is the better buy for you.
ChargePoint is a leading player in the race to build North America's EV charging network. Similar to the need for gas stations, a connected network of public charging stations is likely to support wider EV adoption.
As bright as the future is for charging companies, it's no secret that the COVID-19 pandemic crippled new EV sales. According to research by S&P Global, U.S. 2020 EV sales were down around 10% from a record high of 331,000 in 2019. For context, total 2019 U.S. vehicle sales were around 17.2 million, meaning EV sales comprised just under 2% of total sales for the year.
Given that North America is still in the early innings of EV adoption, it isn't all too surprising that there are very few publicly traded U.S.-based EV charging companies. ChargePoint seems to be the best of them for several reasons. The company already has a firm handle on Level 2 charging stations, which supply 240-volt AC current at a rate of around 25 miles per hour of charging. It isn't much, but it does the trick when a vehicle is parked for an extended period.
ChargePoint offers over 132,000 places to charge, the vast majority of which are Level 2. The company is also growing its portfolio of faster DC charging options -- its version of the Tesla supercharger. There's also growth potential for fleets like trucks, buses, delivery vans, and even semi-trucks, which are increasingly looking toward electric options. ChargePoint is forecasting around $200 million in fiscal year 2022 revenue, which would give it a forward price-to-sales (P/S) ratio of around 37. While not cheap by traditional valuation metrics, ChargePoint offers investors an entry into what could be a paradigm-shifting industry.
Kinder Morgan is the North American leader in pipeline infrastructure. Although it mostly transports natural gas, the company also handles a variety of other petroleum products and chemicals.
Kinder Morgan offers investors a completely different investment option than an unprofitable growth stock like ChargePoint. While ChargePoint is increasing its spending and investing in new markets, Kinder Morgan has been busy cutting spending and improving its balance sheet. The company has done an excellent job of generating buckets of operating cash flow, which has helped it reduce its debt and increase its dividend.
The above chart illustrates a textbook example of a solid dividend stock. However, the issue with Kinder Morgan is that its lack of spending could impede its long-term growth. Just as ChargePoint plays into the narrative of increased EV adoption, Kinder Morgan is vulnerable if the world of tomorrow relies less on fossil fuels. The biggest risk facing Kinder Morgan is if natural gas consumption, whether industrial or residential, stagnates or declines in the coming decades to the point its profit margins compress and its business loses value. Investors worried about this threat should appreciate Kinder Morgan's prudence and capital discipline. To further compensate investors for sector risks, Kinder Morgan has a dividend yield of 5.9% -- which is over three times as large as the average yield in the S&P 500.
ChargePoint has been in business for nearly 15 years, solidifying itself as the market leader in an unproven industry. Meanwhile, Kinder Morgan disappointed investors after the oil and gas crash of 2014 and 2015, only to rebuild itself with a safer business model that's better for dividend investors. Kinder Morgan's consistent earnings and accurate guidance provide a level of stability that income investors look for. By comparison, ChargePoint's guidance could vary wildly depending on a slew of factors outside its control.
Kinder Morgan's lack of spending means it's unlikely to grow as fast as ChargePoint, let alone its competitors. The irony is that it isn't trying to. Kinder Morgan is an excellent choice for retirees looking to generate income, or any investor looking for a generous dividend yield they can count on. Meanwhile, ChargePoint is a high-risk/high-reward growth option. For most investors, Kinder Morgan is likely to be the better buy. But for folks with a long-term time horizon, the patience of a saint, and a stomach built to handle volatility, ChargePoint could very well be worth the risks.